SHERRITT INTERNATIONAL $5.26 (Toronto symbol S; TSINetwork Rating: Speculative) (1-800-704- 6698; www.sherritt.com; Shares outstanding: 296.7 million; Market cap: $1.6 billion; Dividend yield: 2.9%) is a diversified natural resource company that produces nickel, cobalt, thermal coal, oil and gas. It also manages 376 megawatts of power generation capacity in Cuba.
Sherritt is a major nickel producer, with operations in Cuba and Canada. It is also close to finishing a mine at its 40%-owned Ambatovy project on the island nation of Madagascar, off Africa’s east coast. As well, Sherritt produces oil and gas in Cuba, Spain and Pakistan. It is also Canada’s largest thermal coal producer.
In the three months ended March 31, 2012, Sherritt’s revenue fell 2.6%, to $462.2 million from $474.5 million a year earlier. Lower nickel prices were the main reason for the decline. Cash flow fell 17.0%, to $117 million, or $0.40 a share, from $141 million, or $0.48 a share. That was due to the lower revenue and higher production costs.
The company’s long-term debt of $1.7 billion is 1.1 times its market cap. However, it holds cash of $592.9 million, or $2.00 a share.
Sherritt gets most of its revenue and earnings from Cuba, and is the country’s largest foreign investor. Cuba’s uncertain political and economic situation adds to Sherritt’s risk. However, the company is diversifying away from Cuba by investing in other countries. For example, in late 2011, it bought 46% of Rio Tinto’s huge Sulawesi nickel project in Indonesia.
The company needs an improving global economy to fuel commodity demand. But its low production costs and its ongoing geographic diversification enhance its prospects.
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